The S&P futures are trading 15 points below fair value and the NASDAQ futures are trading 18 points below as markets in Europe are reeling (down 2.5%) following a big loss at the largest UK Life Insurance company (Aviva) and no detail from China’s Premier on an expanded stimulus package. Weaker corporate earnings, capital concerns at financial institutions (GECC, Insurance Sector) and weaker economic data continue to pressure stock prices. Bloomberg is reporting this morning that “earnings for 252 companies in the Stoxx 600 that have reported since January 12 have dropped 94%. That compares to a 58% contraction in the profit for the 465 companies that have reported results in the S&P 500 during the same period.” Although CNBC pundits with a political agenda have pointed to the Obama budget as the primary reason the market has dropped 13% in the last 10 trading sessions, the real trigger has been accelerating concerns about the global economy and decreased expectations for 2009 corporate profits. Prior to February, the consensus was expecting a very modest economic recovery in the 2H09. Currently, the consensus currently expects the recession to last into 2010. Along those lines, Goldman Sachs lowered their 2009 global GDP forecast this morning to minus –0.60% from –0.20% (note: Goldman lowered their US GDP forecast on Tuesday). The bottom line is that the markets have been pricing in a deeper and more protracted global recession.

In terms of strategy, I continue to favor a short-term trading strategy that avoids significant overnight risk especially in financial sector equities/derivatives. But, I am more constructive on the long-term outlook for stocks. Traders should cover short positions and adopt a long bias below S&P 700 and especially between S&P 650 and 680. Over the last year, my morning call commentary has been extremely cautious about the long-term outlook given the macroeconomic headwinds and the deleveraging in the banking sector. But, these headwinds now appear discounted in stock prices. The next 10% move in the S&P is most likely higher. But, as always, risk management trumps conviction.

Impact Research Calls/Market Moving News:

AV LN (285): Aviva, the largest UK Life Insurance company, is trading down 28% in London following news of a big loss (1.3 billion). Aviva also wrote down the value of its bond holdings by 8%. UK insurance stocks are down 10-20% and credit default swaps have blown out on capital reserve concerns. Aviva says they are currently seeing the “toughest markets in modern business history.”

GE (6.69): General Electric CFO Keith Sherin repeats that there is no need to put additional capital into GE Capital: GE says the week of 16-Mar, it will have a GE Capital update again, providing more information on real estate, US consumer and its global mortgage business and will attempt to be more transparent about GE Capital's book. GE says it has been working "really constructively" with the credit ratings agencies and Sherin says he met with S&P and Moody's yesterday. Sherin says he can't say what the ratings agencies are going to do with the ratings. Sherin says "it is possible that we could end up with a AA rating. General Electric's cash flow is likely $16B, or $14B in a stress scenario – CNBC: CFO Sherin says it would have to be a "disastrous economic situation" for GE to have to access TARP and would need to be a "very near last case scenario." GE says it can shrink GE Capital even more if it needs to do so, as an alternative to raising capital

ADBE (16.32): Adobe Systems guides Q1 EPS to $0.44-0.45 vs prior $0.43-0.47 and Reuters $0.41: The company guides Q1 revenue to $783-786M vs. prior $800-850M and Reuters $794.5M. Adobe Systems guides Q2 revenues to $675-725M vs. Reuters $778M: For Q2, the company is targeting an operating margin of 32-36% on a non-GAAP basis vs. an expected margin of 37.0-37.5% in Q1. The company cited weakness in its creative and knowledge worker businesses as the primary reason for the revenue shortfall in Q1

ADBE (16.32): Adobe Systems upgraded to buy from hold at Jefferies: The firm cites attractive risk/reward. Target raised to $21 from $18. Shares also upgraded at UBS and Friedman Billings this morning

BIDU (157.32): Baidu upgraded to buy from sell at Citi, we're told: Target is $181. Firm believes BIDU’s traffic rebound post-CNY in Feb has continued to improve weekly and has been stronger than expected, based on latest channel checks. Citi says BIDU will likely exceed Q1 expectations.

GM (2.20): General Motors files 10-K: The company says there is substantial doubt about its ability as a going concern. Note that GM reported last night it was delaying the filing and said that it anticipated receiving from its auditor an opinion expressing substantial doubt about its ability to continue as a going concern. Given the recent developments, the statement is not a surprise.

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The purpose of this blog is to retain an electronic diary/archive of key market moving news and events. The morning note includes my personal views on the financial markets and fundamental research pulled from newswires, Bloomberg, First Call, and other market intelligent websites and blogs. The note helps me prepare for the trading day and helps my PM position the porfolio for upcoming events and catalysts.